Uncertainty defines the grain markets

Take your pick as to which is the strongest factor defining grain prices currently:

Is it the continuing saga of the trade troubles with China, or the resultant dispute over whether Uncle Sugar is going to pass out a second soybean compensatory payment, or is it even the amount of the payment if it is paid?

For whatever reason, the market is finding it hard to define what is going on, and that results in nervous traders and a directionless market.

The good news is that the end of the week saw Chinese purchases of three million metric tons (mmt) of soybeans. This is part of what they promised in a vague agreement on the sidelines of the recent G20 meeting in Argentina. The U.S. agreed with them to spend three months defining a trade agreement. In the meantime they would buy “significant quantities” of US products. It remains to be seen what “significant” is. One analyst had earlier said we would see 10 mmt moved.

Industry sources say the purchases are all by Chinese government agencies, not by private buyers. The privates seem to worry that the deal might change while products are in shipment, and they would be on the hook. They are letting the government agencies take responsibility for now.

So, what exports of soybeans will we see? And, will they come in time to help, or will the Southern Hemisphere new crop replace our sales? Or, will the Chinese agree to a certain level of US imports even after the Brazilians fire up their exports?

Market Facilitation Program payments

Then, there is the matter of compensatory soybean payments by our government. In November, Uncle Sugar committed to paying $1.65 a bushel to soybean producers to compensate for the effects of the trade war on the American farmers. Other commodities were also supported, but at lower levels because the big export is soybeans, being the second largest export to China.

Now comes Sonny Perdue, the Ag Secretary, saying he had promised the payment in early December, but he is fighting with the White House Office of Management and Budget to get it. One argument is that, given the G20 sidelines agreement, prices are improving and the whole amount should not be paid.

On Monday Dec. 3, the first trading day after the temporary agreement, the price of January soybean futures did briefly trade 29 cents above the 8.94 3/4 previous close. However, most of our trading has been below that since.

We had one spike to 9.28 on Dec. 12, but we are currently, on Tuesday morning (Dec. 18), trading 9.08, only 13 3/4 cents above the Friday close before the meeting with China. So much for the 60 cents we were going to gain out of this.

The other argument coming from our government is that we don’t have the money to pay the farmers. We are currently involved in a political struggle over funding part of The Wall, and may have a partial shutdown by the time this is published. If so, so much for your money until that is resolved! Be assured that, even though ‘essential employees” will still work and be paid, you will not.

The trivia lover in me is fascinated that one result of the trade war is the creation of a new acronym to remember. The compensatory payments are known as the “Market Facilitation Program,” or “MFP.” Geezers will remember those cigarette commercials on TV in the ’50s. “LSMFT.” “Lucky Strike Means Fine Tobacco.” Now it is “LCMFP,” otherwise known as, “Last Chance for Market Facilitation Payment!”

The good news this week, probably, is that a bipartisan movement (how did that happen?) did pass the new farm bill. A bunch of proposed regulations in the House version about cleaning up the food stamp program, which should not be in the farm bill anyway, were left out in order to get it passed. Some of the loan rates were raised, but they are still laughably low.

The trade is still passing around the rumor that any final deal with China will include corn, even though we have not been sending corn to China before this. This may be the support in the corn market right now.

This Tuesday morning, we are trading 3.84 on the March futures. That is unchanged for the day so farm, but well above the “pre-meeting” low of 3.67 1/4 on Nov. 26. Since the agreement we have gapped higher, then traded a range between 3.80 and 3.88.

Chicago wheat futures have been trading independently of the trade talk, but have also been positive. From the Nov. 27 recent low of 5.04, we have seen 5.38 1/2 on the 13th. Currently we are 5.33 1/2.